We All Know Government Is too Big, but the Rahn Curve Provides the Evidence

Please share this video with everyone you know. It explains the “Rahn Curve,” which is a spending version of the Laffer Curve. Named after Cato Institute’s Richard Rahn, the Curve shows that modest amounts of government spending – for core “public goods” such as rule of law and protection of property rights – is associated with better economic performance.

But when government rises above that level (as it has in all developed nations), then more government is associated with slower growth.

261 Responses

What an informative video. I am helping with a gubernatorial campaign in OK this year, and this would be a great grassroots effort to get the truth out. Permission to use this video and a digital copy of the slides for reprint would be much appreciated.

[…] the right answer is, d) reducing government spending. After all, the evidence is very clear that excessive government slows growth by diverting resources from the productive sector of the economy. Sadly, the poll only allowed the three options. So I said “reducing taxes” since that […]

[…] Freedom Day only measures the direct and immediate impact of taxation. It doesn’t measure the overall burden of government. This chart from the Tax Foundation shows that the fiscal burden of government has jumped […]

[…] Freedom Day only measures the direct and immediate impact of taxation. It doesn’t measure the overall burden of government. This chart from the Tax Foundation shows that the fiscal burden of government has jumped […]

[…] Freedom Day only measures the direct and immediate impact of taxation. It doesn’t measure the overall burden of government. This chart from the Tax Foundation shows that the fiscal burden of government has jumped […]

[…] Freedom Day only measures the direct and immediate impact of taxation. It doesn’t measure the overall burden of government. This chart from the Tax Foundation shows that the fiscal burden of government has jumped […]

[…] Tax Freedom Day only measures the direct and immediate impact of taxation. It doesn’t measure the overall burden of government. This chart from the Tax Foundation shows that the fiscal burden of government has jumped […]

[…] For all intents and purposes, all this research shows that developed nations are on the downward-sloping portion of the Rahn Curve. Named after my Cato colleague Richard Rahn and explained in the video below, the Rahn Curve is sort of a spending version of the Laffer Curve. […]

[…] For all intents and purposes, all this research shows that developed nations are on the downward-sloping portion of the Rahn Curve. Named after my Cato colleague Richard Rahn and explained in the video below, the Rahn Curve is sort of a spending version of the Laffer Curve. […]

[…] For all intents and purposes, all this research shows that developed nations are on the downward-sloping portion of the Rahn Curve. Named after my Cato colleague Richard Rahn and explained in the video below, the Rahn Curve is sort of a spending version of the Laffer Curve. […]

[…] we educate everybody about the Laffer Curve, we can then concentrate on teaching them about the equivalent relationship on the spending side of the fiscal ledger, the Rahn Curve. Rate this: Share this:PrintEmailFacebookTwitterMoredeliciousDiggFarkLinkedInRedditStumbleUponLike […]

[…] think I covered a lot of ground in about 10 minutes. The key message was that government is too big and that the only solution is to limit government so that it grows slower than the private sector. […]

Put it at 100% will make no difference if they get enough exemptionas to pay 1.5% of gdp. We rank #2 in OECD on Least Tax as % of GDP on corporations

How can one justify—Corporations get more Exemptions than they Pay in taxes????????????????????

Since 1980, our tax book has been a Christmas Tree for goodies for Rich and Corporations

Their tax rates have, steadily, gone down down down

.We borrowed 14,00 Billion that took rich to ultra rich and corp ceos etc to ultra rich..Tme to tax them to get a pay back.

Jobs Creators My rear end. 31,000 net new jobs per month in Bush 8 years.
Lowest since Hoover.
In 20 of 3 Repub presidents since 1980 we got 90,000 per month compared to Carter Clinton 222,000. Rich got huge tax breaks under the 3 and only 99,000
per month.

Response to Heritage article on cost of poor
Anti-Christ Anti America????
Help the poor ultra rich—Shaft the poor poor

Have you ever told both sides? Rich and Poor. Revenues/Expenditures Mismatch?
No one can deny our programs need change including those that enrich the already ultra rich.

The poor get peanuts the Rich get Caviar. Try Top Down on Expenditures.
Who gets our tax revenues.

Since 1980. our Tax Book has been a Christmas Tree loaded with goodies for Rich and Big corporations like GE.
Is it not shameful to you that the Rich & Corporations get more in Exemptions than they pay in taxes??? Does that not bother you?

Does it not bother you that top 50% get 87% of individual Income and pay 12.5% tax rate or 10% of total income????

Does it not bother you that 10% own 73% of net wealth.83% financial wealth and get 50% of income
It would bother Jesus Christ!

Does it not bother you that our rankings in OECD nations are:
#2-Least taxed as percent of GDP—Taxed 30% of GDP in federal-state-local taxes
#2-Least taxed corporations as % of GDP. 35% top rate could be 100% no one pays it
#4 on Inequality—In 1980, in bottom 5.
It would bother Jesus Christ!!

1980 to 2009 our Tax Book has been a Christmas Tree loaded with goodies for Rich and Large corporations
Think not? Then explain how they get more exemptions than they pay in taxes?

Explain how from 1945 to 1980 bottom 20% gained more, percentage-wise, than top 1% in Wealth?

Explain how the top 50% get 87% of total individual income and pay a 12..5% Tax Rate which is actually about 10% of Total Income?

Explain this AWFUL—How 10% get 73% of net wealth ; 83% of financial wealth; 50% of individual income ; pay 18.5% tax rate or “about” 15% of total income???

Explain how 80% got the big shaft since 1980????

Yes! All programs need my Top Down Cost Reduction Program that has saved millions for businesses.
Top Down will show a picture that you refuse to acknowledge or expose.

I like Heritage but hate deceptions. Your writers may believe, sincerely, what they publish yet that does not make it truth.

When will you tell of the Disaster of Reagan, Bush I and Bush II?
Took 600B budget to 3500B (less Lord Bill litsy bitsy) in 20 years
Took 1000B Debt (after 200 years)to 10,000B in 20 years
Took surplus to 1400B Deficits as far as eye can see
Created 99,000 net new jobs per month to Carter + Clinton 222,000
Initiated our involvement in 10 foreign conflicts
Smashed our Housing Industry
Smashed the World Financial System with unregulated Casino Derivative of America.
Lied us into Two horrid wars
Took us from most admired nation to Big Bully hated by1500 Million Muslims and lost respect in most nations. Started our Decline into End Of American Empire.
Clarence swinney-old87 uglymeanhonest political historian Lifeaholics of America

[…] My motivation was to help people understand that America’s fiscal problem is excessive government spending, not red ink. Deficits and debt are undesirable, of course, but they are best understood as symptoms. The underlying disease is a bloated federal budget that diverts resources from the productive sector of the economy and subsidiz…. […]

[…] are two simple answers. First, enact a simple and fair flat tax to keep rates low. Second, shrink government to its proper size, which will automatically reduce waste and limit opportunities for […]

[…] it often hurts the economy when government spends money. Sort of a perverse 2-for-1 special (though “Rahn Curve” analysis does show that some types of spending – on core public goods – is correlated with better economic […]

[…] are two simple answers. First, enact a simple and fair flat tax to keep rates low. Second, shrink government to its proper size, which will automatically reduce waste and limit opportunities for […]

[…] it often hurts the economy when government spends money. Sort of a perverse 2-for-1 special (though “Rahn Curve” analysis does show that some types of spending – on core public goods – is correlated with better economic […]

[…] Another problem is that people assume that tax rates should be set at the revenue-maximizing level. I explained back in 2010 that this was wrong. Policy makers should strive to set tax rates at the growth-maximizing level. But since a growth-generating tax is about as common as a unicorn, what this really means is that tax rates should be set to produce enough revenue to finance the growth-maximizing level of government – as illustrated by the Rahn Curve. […]

One argument not made by Mitchell, is that the more you have to pay to government for a product, the more it costs. And countries that have lower burdens of government, are able to product goods/services at lower costs to consumers, as a result. Thus, lower taxes is better for consumers and producers.

To me the best government spending level is 0. But that assumes we won’t have criminals or foreign enemies. Thus, limiting government to just protecting our freedoms, provides the best opportunities for prosperity. The alternative, is to pay government (instead of a company in a free market) for goods/services. And since when has government produced anything but war competitively?

Government produces cataract surgery in North Korea, but citizens with cataracts there go blind for lack of it (but Kim Jong can get it, being the 1% leader). That’s how well government produces.

[…] are too onerous and unfair. If I somehow manage to bring government down to 10 percent of GDP, as the Rahn Curve suggests if we want to maximize prosperity for the American people, then I’ll have the luxury of worrying about the moral legitimacy of a […]

[…] are too onerous and unfair. If I somehow manage to bring government down to 10 percent of GDP, as the Rahn Curve suggests if we want to maximize prosperity for the American people, then I’ll have the luxury of worrying about the moral legitimacy of a […]

[…] to be distracted by humor and would rather focus on reckless and wasteful spending, then you should watch this Rahn Curve video to understand the economic damage of big government. Rate this: Share this:PrintEmailFacebookTwitterMoredeliciousDiggFarkLinkedInRedditStumbleUponLike […]

[…] to be distracted by humor and would rather focus on reckless and wasteful spending, then you should watch this Rahn Curve video to understand the economic damage of big government. Like this:LikeBe the first to like this post. By Everette Hatcher III, on April 23, 2012 at […]

[…] to be distracted by humor and would rather focus on reckless and wasteful spending, then you should watch this Rahn Curve video to understand the economic damage of big government. Like this:LikeBe the first to like this post. By Everette Hatcher III, on April 23, 2012 at […]

[…] the long run, of course, the goal should be to shrink the overall burden of government to its growth-maximizing level. Rate this: Share this:PrintEmailFacebookTwitterMoredeliciousDiggFarkLinkedInRedditStumbleUponLike […]

[…] I wrote about him last year. We clashed the most, arguing about everything from tax havens to the size of government. Interestingly, we both said nice things about Sweden, but I was focusing on policies such as […]

[…] One reason they have good tax policy is that the burden of government spending is relatively modest, usually less than 20 percent of economic output (maybe their politicians have heard of the Rahn Curve!). […]

[…] be the first to admit that infrastructure spending is less damaging that social welfare spending, but it is a bit of a fantasy to assume that there are lots of high-return projects languishing on […]

[…] My video on Obamacare, for instance, completely focused on how the legislation would expand the burden of government. The mandate is a bad idea, without question, but it’s also a big mistake to impose more spending and taxes when government already is far too big. […]

[…] not true. If the burden of government spending had grown as 3 percent instead of 8.3 percent, economic growth would have been much stronger, so GDP would have been much larger and the public sector would be an ever smaller share of […]

[…] not true. If the burden of government spending had grown as 3 percent instead of 8.3 percent, economic growth would have been much stronger, so GDP would have been much larger and the public sector would be an ever smaller share of […]

[…] Another problem is that people assume that tax rates should be set at the revenue-maximizing level. I explained back in 2010 that this was wrong. Policy makers should strive to set tax rates at the growth-maximizing level. But since a growth-generating tax is about as common as a unicorn, what this really means is that tax rates should be set to produce enough revenue to finance the growth-maximizing level of government – as illustrated by the Rahn Curve. […]

[…] are two simple answers. First, enact a simple and fair flat tax to keep rates low. Second, shrink government to its proper size, which will automatically reduce waste and limit opportunities for […]

[…] it often hurts the economy when government spends money. Sort of a perverse 2-for-1 special (though “Rahn Curve” analysis does show that some types of spending – on core public goods – is correlated with better economic […]

[…] Another problem is that people assume that tax rates should be set at the revenue-maximizing level. I explained back in 2010 that this was wrong. Policy makers should strive to set tax rates at the growth-maximizing level. But since a growth-generating tax is about as common as a unicorn, what this really means is that tax rates should be set to produce enough revenue to finance the growth-maximizing level of government – as illustrated by the Rahn Curve. […]

[…] burden of government spending shrinks over time. By slowly but surely reducing the amount of GDP diverted to fund government, this would enable policymakers to deal with the one area where Estonia’s tax system is very […]

[…] and 73 PowerPoint slides, but I could have saved them a lot of time if I simply showed them this Rahn Curve video and then posted just one slide – the one showing that the burden of government spending in […]

[…] not true. If the burden of government spending had grown as 3 percent instead of 8.3 percent, economic growth would have been much stronger, so GDP would have been much larger and the public sector would be an ever smaller share of […]

[…] it often hurts the economy when government spends money. Sort of a perverse 2-for-1 special (though “Rahn Curve” analysis does show that some types of spending – on core public goods – is correlated with better economic […]

[…] close this post by suggesting where there could be consensus. As I noted in my Rahn Curve video, there are some forms of government spending that are associated with better economic performance. […]

[…] not true. If the burden of government spending had grown as 3 percent instead of 8.3 percent, economic growth would have been much stronger, so GDP would have been much larger and the public sector would be an ever smaller share of […]

[…] I wrote about him last year. We clashed the most, arguing about everything from tax havens to the size of government. Interestingly, we both said nice things about Sweden, but I was focusing on policies such as […]

[…] We all know there is some “optimal size” for government spending, as a percentage of the economy. If it were 0%, we’d have anarchy: no police, no courts, no military (all of which I would rather have). And if it were 70%, 80% or more, we’d have communism, a system that always fails. The optimal size is somewhere, between those extremes. This phenomenon has a name: the Rahn Curve. […]

[…] From an optimistic perspective, the fiscal situation should stabilize if governments keep spending under control. Some additional spending cuts would be very desirable since government spending consumes 45 percent-50 percent of GDP in these nations, which is at least double the growth-maximizing level. […]

[…] From an optimistic perspective, the fiscal situation should stabilize if governments keep spending under control. Some additional spending cuts would be very desirable since government spending consumes 45 percent-50 percent of GDP in these nations, which is at least double the growth-maximizing level. […]

[…] From an optimistic perspective, the fiscal situation should stabilize if governments keep spending under control. Some additional spending cuts would be very desirable since government spending consumes 45 percent-50 percent of GDP in these nations, which is at least double the growth-maximizing level. […]

[…] means better politicians and/or better election results. But every advocate of tax reform and smaller government should be very happy that there are people in the country who are pressuring politicians to adhere […]

[…] Ramirez cartoon makes the same point). So perhaps the only logical conclusion to reach is that government is too big and that Keynesian economics is wrong. I don’t think I’ll ever convince Robert Reich, but […]

[…] makes the cartoon so effective is not just the humor, but also the fact that it makes clear that government is too big and it also debunks the Keynesian notion that bad things will happen if we have even an […]

[…] makes the cartoon so effective is not just the humor, but also the fact that it makes clear that government is too big and it also debunks the Keynesian notion that bad things will happen if we have even an […]

[…] If you want my two cents on the topic, you maximize growth when you raise the revenue needed to finance the legitimate functions of government – and that requires a lots less revenue than we’re collecting now according to scholarly evidence on the “Rahn Curve.” […]

[…] are particularly harmful for growth. That also makes a lot of sense since I’ve explained in my video on the Rahn Curve that core public goods can be good for growth while other types of government spending undermine […]

[…] are particularly harmful for growth. That also makes a lot of sense since I’ve explained in my video on the Rahn Curve that core public goods can be good for growth while other types of government spending undermine […]

[…] I’ve repeated over and over again, the real fiscal problem in most nations is the size of government. Excessive government spending is bad for prosperity, regardless of whether it is financed by taxes […]

[…] Though I hasten to add that it’s not the ideal tax rate. As the risk of being repetitive, the tax system should only fund the legitimate functions of government. For much of our history, the government only consumed about 10 percent of economic output and we didn’t need any broad-based tax. So you know where I stand. […]

[…] the end of the interview segment, I say the goal should be to reduce the size of government relative to the productive sector of the economy. I wasn’t narcissistic enough to say “Mitchell’s Golden Rule” on air, but I […]

[…] the end of the interview segment, I say the goal should be toreduce the size of government relative to the productive sector of the economy. I wasn’t narcissistic enough to say “Mitchell’s Golden Rule” on air, but I did say that […]

[…] spend money with high levels of effectiveness and efficiency, this certainly suggests that growth will be stronger when the burden of government spending is modest (and if spending is concentrated on “public goods,” which do have a positive […]

[…] spend money with high levels of effectiveness and efficiency, this certainly suggests that growth will be stronger when the burden of government spending is modest (and if spending is concentrated on “public goods,” which do have a positive “rate of […]

[…] spend money with high levels of effectiveness and efficiency, this certainly suggests that growth will be stronger when the burden of government spending is modest (and if spending is concentrated on “public goods,” which do have a positive “rate of […]

[…] From an optimistic perspective, the fiscal situation should stabilize if governments keep spending under control. Some additional spending cuts would be very desirable since government spending consumes 45 percent-50 percent of GDP in these nations, which is at least double the growth-maximizing level. […]

[…] strive to limit the amount of bureaucrats and how much they’re paid. The bad news is that the public sector is far too large in the United States, and that means (as explained in this video) we have too many over-compensated […]

[…] are particularly harmful for growth. That also makes a lot of sense since I’ve explained in my video on the Rahn Curve that core public goods can be good for growth while other types of government spending undermine […]

[…] Ryan and the House GOP can legitimately claim that the proposed budget is good for growth. But improved economic performance would be the result of a smaller burden of government spending and a potentially less destructive tax system. Those are […]

[…] the end of the interview segment, I say the goal should be toreduce the size of government relative to the productive sector of the economy. I wasn’t narcissistic enough to say “Mitchell’s Golden Rule” on air, but I did say that […]

[…] *As I have written, over and over again, restraining the size and scope of the federal government should be the main goal of fiscal policy. Deficits and debt are undesirable, of course, but they’re best viewed as symptoms of the real problem, which is too much spending. […]

[…] in government spending is the most important number (or set of numbers) in any budget. If the burden of spending is rising, regardless of whether that increase is financed by taxes or borrowing, more resources […]

[…] That being said, I think that CRFB’s focus is misplaced. They fixate on debt, which is the symptom, when they should be more concerned with reducing excessive government, which is the underlying disease. […]

[…] What really matters for long-run prosperity is limiting the size and scope of government. Once the growth-maximizing size of government is determined, then lawmakers should seek to finance that public sector with a tax system that […]

[…] the public sector in New Zealand today is consuming 40.5 percent of economic output, which is far too high, but still lower than 44.7 percent of GDP, which was the amount of GDP consumed by government in […]

[…] suppose this is the point where I should explain that good fiscal policy is defined by a modest-sized government and a tax code that is designed to raise revenue in a relatively non-destructive fashion, not by […]

[…] suppose this is the point where I should explain that good fiscal policy is defined by a modest-sized government and a tax code that is designed to raise revenue in a relatively non-destructive fashion, not by […]

[…] compliance. And to the extent that the revenue feedback is due to growth, that will mean that the burden of government spending will fall relative to the size of the private sector even if actual outlays stay the […]

One thing that is left out is what is the government spending aimed at. In scenario – we can assume that the only spending is associated with hiring thousands of people whether they do meaningful work or not in scenario 2 let’s us take another extreme there is a small govt. that literally squanders the money overseas Or somewhere that results in zero benefit to the tax payer – the reality is of course in the middle of the extremes but tends to lean toward first or second scenario depending on point of time for example in a war it will be squandered overseas and in times of absolute peace and prosperity govt employees would not have to do much. So the challenge is to find out how to maximize the return in investment –

[…] of government in Costa Rica should be downsized. And that’s true whether you think that the growth-maximizing size of government, based on the experience of the western world, is 5 percent-10 percent of GDP. Or whether you limit […]

[…] fixate on balancing the budget in any particular year. It’s much more important to shrink the burden of government spending. And that happens when the private sector grows faster than the federal […]

[…] shouldn’t fixate on balancing the budget in any particular year. It’s much more important to shrink the burden of government spending. And that happens when the private sector grows faster than the federal […]